Consumer Credit Bill - Standing Committee D

[Derek Conway in the Chair]

Consumer Credit Bill

Charles Hendry: On a point of order, Mr. Conway. I am sorry to raise a point of order so early in the proceedings. You were here when we were discussing the Bill last Thursday and it may have struck you at the time that we tabled many interesting amendments, which the Minister made clear from the outset that he was unlikely to accept. Indeed, he was true to his word on that. What was rather more disappointing was that we put many questions to the Minister, which we hoped he would answer and give further details on before we came to a decision on the amendments and some of the clauses.
As you may recall, Mr. Conway, the Minister was rather slippery, if that is a parliamentary term. He did not manage to answer many of the questions put to him. Indeed, I cannot recall him answering any of them. Is there anything that you can do on behalf of Back Benchers and other hon. Members to ensure that the Minister answers the questions that are put to him? Otherwise, we may have to have Divisions on clauses, not because we disagree with them but because we do not have enough information to hand to make a judgment as to whether the clause is right or not, which would be very bad news for the Government. They are facing a humiliating defeat later today on identity cards and to face defeat after defeat in the course of the day on consumer credit issues would be too much.

Derek Conway: Fortunately, the Chair is not responsible for the contents of the Minister’s speech or the questions he replies to, but of course the Opposition can call a Division, as can any other member of the Committee, on any item before it. I am sure that we shall all look forward to that during our deliberations.

Clause 23 - Definitions of “consumer credit business” and “consumer hire business”

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Good morning, Mr. Conway. I am hurt and saddened by that vicious attack, which was made so early during our deliberations today. I hope to be able to answer the many questions that the hon. Member for Wealden (Charles Hendry) will put today. With your  permission, Mr. Conway, it may be worth saying that many of the questions put so far related to general aspects of the Bill and the regulations that flow from it.
I do not want to teach the hon. Gentleman to suck eggs, but he will remember from his time serving on previous Committees that the legislation is there to set the framework, while the detail of the framework comes from secondary legislation that is subject to consultation with the industry and the stakeholders. I am sure that, when the secondary legislation comes forward, he will be able to get the answers to many of his questions. I undertook to meet him, if he remembers, to discuss a particular issue and I hope that any outstanding answers will be available by the time we have that meeting.

Charles Hendry: It will be a long meeting.

Gerry Sutcliffe: We will see how it goes.
The clause amends the definitions of consumer credit business and consumer hire business. These definitions are important, because under section 21 of the Consumer Credit Act 1974, anyone who wants to conduct a consumer credit or hire business needs a licence. Amending the definitions changes the activities for which a licence is required.
There is a problem with the existing coverage of the licensing regime. It is not clear that businesses that purchase a portfolio of existing loans require a licence. The Department of Trade and Industry, the Office of Fair Trading and advice bodies have received complaints about businesses that purchase existing debts. Consumers are often confused about who is responsible for the contract and what controls there are on those businesses.
That is important because consumer detriment can arise from the way in which agreements are administered. Administering agreements can include varying the interest rate or changing the terms of the agreement, and agreements regulated by the 1974 Act can continue for many years. It is appropriate that a licence should be required to administer agreements. The OFT can then check that the person is fit to do so and regulate that activity.
The clause also ensures that a consumer credit or hire business will not be able to enforce its agreements once its licence has been revoked. That will help to avoid the situation which arose in the recent case of Mr. and Mrs. Meadows. As the lender was only administering the agreements, the OFT was unable to intervene.
Hon. Members will see that the definition of consumer credit business now covers businesses relating to the provision of credit by a person, or otherwise being a creditor. A creditor is a person who provides credit under an agreement or a person to whom the rights and duties under the agreement have passed by assignment or operation of the law.
The new definition ensures that businesses will need a licence even if they are no longer making new agreements. They will need a licence if they only administer existing agreements by taking over the rights and duties of the creditor. The same logic applies for the new definition of consumer hire business. The  clause means that creditors exercising rights under an agreement are now within the regulatory regime. It means the OFT can ensure appropriate standards and protect consumers throughout the whole life of their agreement.

Question put and agreed to.

Clause 23 ordered to stand part of the Bill.

Clause 24 - Debt administration etc.

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: This clause inserts into the 1974 Act a new type of ancillary credit business—debt administration. Businesses that administer debts on behalf of others will need a licence. Debt administration means performing duties under a consumer credit or hire agreement on behalf of the creditor or owner; or exercising or enforcing rights on behalf of the creditor or owner, not including debt collection. The clause ensures that a licence is needed to administer agreements if the person administering is not the creditor or owner.
The way in which duties are performed or rights are exercised can have a significant effect upon the debtor. They include varying the interest rate or the terms of the agreement. Clearly, there is potential for detriment arising from that behaviour. The clause complements clause 23, which amends the definitions of consumer credit businesses and consumer hire businesses, to ensure that a licence is required for a creditor or an owner to administer agreements.
The Department of Trade and Industry, the OFT and citizens advice bureaux have received some complaints about debt purchasing companies. Debt purchasing of the kind we are concerned with in this clause is when businesses purchase portfolios of existing loans and administer them.
Consumers are sometimes confused about who their contract is with, and surprised to find debt purchasers are not treated in the same way as the licensed original lender. Consumers deal with whoever is administering their loan, and it is difficult to tell whether they are the creditor or someone acting on behalf of the creditor. It follows that, if creditors require a licence to administer their own agreements, someone administering agreements on their behalf should be subject to the same regulation and fitness requirements.
Under clause 23, a debt purchaser who became a creditor or owner when he purchased the loan would require a licence. However, if the creditor or owner subcontracted the administration of his loan agreements to a third party, clause 24 means that the third party would require a debt administration licence. The combination of clauses 23 and 24 is important, as it will ensure that the OFT can protect consumers throughout the life of their agreement.
It has been suggested that the clause would impose a requirement to be licensed on retailers who do no more than hold on to a card at the point of sale when  requested to do so by the card issuer. It is certainly not the Government’s intention to include that in the definition of debt administration. If on reflection the clause is wrong in that respect, the Government will table an amendment to clarify the position.

Charles Hendry: I am grateful to the Minister for that clarification. I am grateful to him also for showing flexibility over the issues relating to retailers. Will he tell the Committee what powers there are to strike people off if they have been acting improperly when granted a licence? Do they have a right of appeal? What guidelines will be issued about what makes a person suitable or unsuitable for debt administration? For example, if they have a criminal record, will that be enough to make them unsuitable, or will it be written off in time, as with all criminal records? Will he clarify the situation with regard to Criminal Records Bureau checks on individuals involved in debt administration, particularly given the contact that they may have with often vulnerable people?

Gerry Sutcliffe: Again, the hon. Gentleman raises perfectly fair questions. They will be dealt with as we discuss the clauses and consider the powers and responsibilities of the OFT. The fitness test will certainly apply. The general principle that applies to most financial services applies in these circumstances. The detailed issues about the powers and the specific roles of the OFT and the Consumer Credit Appeals Tribunal will become clearer. The OFT has the power to revoke licences, and the procedures are the same for licence holders, including the right of appeal. We shall go through that in more detail as we discuss later clauses.

Question put and agreed to.

Clause 24 ordered to stand part of the Bill.

Clause 25 - Credit information services

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: This clause introduces a new category of ancillary credit business—the provision of credit information services. Credit information service providers will require a licence. New subsections (7B) and (7C) describe what credit information services are. They cover businesses that help individuals to locate and to correct records about their financial standing. That help can be advising an individual or taking steps on their behalf.
New subsection (7D) describes a credit information agency, which is the body that might hold records about an individual’s financial standing. It may be a business that undertakes activity regulated under the legislation or undertakes related activities.
New subsection (7C) lists the steps that the credit information service provider takes that mean that it requires a licence. Those steps are ascertaining whether a credit information agency holds information relevant to the financial standing of their  client; finding out what that information is; and correcting it or ensuring that it is deleted or not passed on. Subsections (3) to (5) make consequential amendments to include credit information services elsewhere in the 1974 Act.
Hon. Members may know that credit information services are more commonly provided by credit repair firms. Those firms investigate a person’s credit record. If they find incorrect entries on records, they can, on behalf of the borrower, ask for those entries to be corrected. There is nothing to stop consumers asking for entries to be corrected themselves. People can write to one of the credit reference agencies enclosing a cheque for £2 to receive a copy of their credit record. If there are mistakes, they can ask for them to be corrected. The Information Commissioner’s office publishes a useful leaflet entitled “No Credit?”, which explains clearly the steps that a consumer can take.
I recognise that some people may never be able to take such action themselves, or may prefer that someone else does it for them. That is fine when the service being provided is legitimate. The OFT would have no problem in licensing legitimate companies that can prove that they are fit.
The problem comes when credit repair companies promise more than they have the legal power to deliver, thus misleading consumers by suggesting that they are able to repair their credit record. They do not say that they can remove only the incorrect entries. Adverse entries on a person’s credit record cannot be removed if they are correct. Some credit repair companies do not make that clear to customers.
In some cases, consumers pay a large sum to the company and receive nothing in return. One company that was investigated by the radio programme “You and Yours” charges £80 to undertake credit repair. It told the reporter that they could clear the file of any record of bad debts, even if he had defaulted on those debts. All too often, those claims are targeted at consumers who already have financial problems and believe that a better credit rating would enable them to borrow more.
Credit repair companies that encourage customers to lie about entries on their credit record are, of course, committing fraud. Currently, the OFT has limited powers to target the rogues in the market, although it has issued consumer warnings about credit repair firms.
Bringing credit information services under the licensing regime ensures that fit businesses can get a licence. The OFT will be able to use its information-gathering powers and, if necessary, to impose requirements on licences. Those that are not fit to provide credit information services will not be given a licence. If they then trade without a licence, they will be committing a criminal offence. We are ensuring that rogues are kept out of the market and that the OFT can maintain appropriate standards among credit information services.

Charles Hendry: I am grateful to the Minister for such a detailed explanation of the clause and of the thinking behind it. I assure him of our support in this area. All of us have had distressing constituency cases in which people have come to us and said that they are unable to borrow because they have been told that they have a bad debt rating, when in fact that rating relates to someone who lived in the house a while before or to a student who happened to live there. To have the issue made clearer is something that we should welcome.
I welcome the fact that the Government announced yesterday that they are setting up a £45 million fund on debt advice. Will some of that fund be used specifically in this area? It seems that many people are simply not aware of credit repair firms, their right to obtain information for a fee and how they go about trying to correct incorrect information that is on file. Does the Minister envisage some of that funding being used to make sure that people are not put in this invidious situation?

Gerry Sutcliffe: Even I can answer this question; it says yes. Clearly, I welcome the hon. Gentleman’s support for the clause. I am pleased to have given the explanation I did on the clause. It is clear that we are trying to make sure that the rogues that promise things that cannot be delivered are removed from the marketplace.
I am delighted that the £45 million is being made available for financial inclusion. It will consider the range of education support. That £45 million will come to the Department for Trade and Industry. We must work out the detail, but a broad range of programmes will come in bids from a variety of agencies, including Citizens Advice, and other debt counselling and money advice services, to offer a range of support to people throughout the levels. A key element of the Bill in the context of financial inclusion and education is to give people as much information as possible.
I welcome the hon. Gentleman’s support for the clause and for the funding. The measure is apolitical in that we all agree that the work is necessary and must be done. I am happy to talk to him about how to develop the fund as we go along.

Question put and agreed to.

Clause 25 ordered to stand part of the Bill.

Clause 26 ordered to stand part of the Bill.

Clause 27 - Charge on applicants for licences etc.

Gerry Sutcliffe: I beg to move amendment No. 25, in clause 27, page 21, line 22, at end insert—
‘()In section 189 of that Act (definitions) after subsection (1) insert—
“(1A)In sections 36E(3), 70(4), 73(4) and 75(2) and paragraphs 14 and 15 of Schedule 1A ‘costs’, in relation to proceedings in Scotland, means expenses.”.’.

Derek Conway: With this it will be convenient to discuss amendment No. 30, in schedule 4, page 69, line 38, at end insert—
‘(aa)the definition of “costs”;’.

Gerry Sutcliffe: This is a technical amendment to make it clear that the definition of costs applies only to those of legal proceedings in Scotland. When costs apply to other things, such as those involved in collecting money to set up the FOS, the amendment makes it clear that the definition in section 189 of the 1974 Act is not relevant. That also applies to amendment No. 30.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Gerry Sutcliffe: We move on to issues relating to the Office of Fair Trading. Licence applicants will be required to pay a charge towards the OFT’s costs of carrying out its functions. That is the same as under the current system. Payment will be required on application and periodically after that, probably every five years.
The OFT will issue a general notice setting out the level of the charges and it is likely that the licence charge will increase from its current level. Approval of the Secretary of State and the Treasury will be required before charges are set. The OFT may set licence charges according to the category or sub-category of activity entered into. That will reflect the cost of monitoring. Narrow licences may attract a reduced charge, but licences in high risk sectors may attract a higher charge and some types of licensees will not have to pay an application or maintenance charge.
The increased charge will fund more effective monitoring of licensees. That will ensure that they remain fit to hold a licence, including visits to premises when appropriate, and will enable the OFT to use the additional powers in the Bill to investigate applicants and licensees.

Charles Hendry: I am grateful for the chance to ask some questions. The Minister said that the OFT will consult widely, but who will be consulted once the charges are set? Will there be a right of appeal if firms believe that the charges are too high? Can the Minister give a clearer idea of what the level of the licence charges may be? He said in ministerial-speak that they will increase from the current level. Everything increases under this Government and goes up. Can he give us a ball park figure? Will the increase be £500, £5,000 or £50,000? At the moment, we do not have a feel for what the figure will be, other than that it will be rather more than at present.
Will the Minister also comment on the need to fund the activities of trading standards services? The guidance from the OFT says that the new work for trading standards services will require new money. Paragraph 12 of the guidance states:
“It is therefore envisaged that costs related to these new powers and functions will represent additional costs to the system.”
Does the Minister expect that some of the licence funding through the OFT will also fund the trading standards services? If not, where will that funding come from? Can he indicate what costs will be on trading standards offices? We are all aware that local authorities are consistently anxious about additional responsibilities being put on them without funding being provided to pay for those services. It seems that this may be another of those responsibilities and that they will be expected to take on new staff, which will involve training and additional running costs. Where will the money come from to pay for the extra activities of the trading standards offices?

Gerry Sutcliffe: Again, those are legitimate questions, but they were not asked in a friendly way. Attacking the Government’s record on rising costs is unfair. All the costs are proportionate to the requirements and in keeping with our better regulation approach.

Charles Hendry: Can the Minister tell me one charge that has gone down in the past eight years?

Gerry Sutcliffe: Not immediately, but I am sure that I can find one for the hon. Gentleman. I undertake to write to the hon. Gentleman about that.
The clause explains how the charges would work and the OFT’s responsibilities. We are not talking about a repetitive licensing regime, in the sense that once a license is issued the OFT has the opportunity to look at the people who are not operating appropriately. To return to the earlier point of order, I set out lots of information for members of the Committee because I knew that they would be interested in many of the issues that have been raised. There is a note in the material that we sent out on the charges that the OFT is likely to charge. I refer the hon. Gentleman to that note.Even if charges doubled, that would only take the cost for limited companies to £550 for five years. The charge compares favourably with those set under other licensing regimes, and will help consumers and fair-dealing businesses to reap financial benefits.
I am pleased that the hon. Gentleman raised the role of trading standards, as there are lots of issues concerning the future of trading standards. It is worthwhile saying how much the Government appreciate the work of trading standards. That is why the Hampton review is considering a consumer and trading standards agency, which will highlight further the work of trading standards. There will have to be discussions with local government about the funding of trading standards work, and the costs of the licensing regime should reflect the ability to fund such work. There will be more detailed discussions once the consultation document on the proposed consumer and trading standards agency goes out, and that will include discussions with local government about how to take things forward. Again, like the hon. Gentleman, I am very appreciative of the work that trading standards does.

Charles Hendry: May I push the Minister a little further? Is he saying that new money will be provided to local authorities for the extended role for trading  standards? Without a guarantee of new money, local authorities will have to cut services elsewhere or consider raising council tax. That will be a great concern to councils that are already hard pressed.

Gerry Sutcliffe: Clearly, we do not want to do that. The licensing charges will reflect the costs to the organisations involved, which will include trading standards. I am making a more general point about the future of trading standards, which the proposed CTSA, through Hampton, will affect.

Michael Penning: Can the Minister clarify further how the mechanism will work? Will money be taken through one licence and given to trading standards officers in our local authorities, which, as my hon. Friend the Member for Wealden said, are stretched to the limit already?

Gerry Sutcliffe: Do not become upset and confused that we are going to transfer the powers across. The money will go to the OFT, which will then look at the requirements and the resources that are needed. The money will come through the OFT, through the licensing charges. The OFT will pay the full cost to the trading standards authorities involved.

Michael Penning: Just to clarify the point, will the OFT fund local authorities in that respect?

Gerry Sutcliffe: Certainly not. The OFT will fund that element of the requirements.

Michael Penning: That is what I am saying.

Gerry Sutcliffe: I thought the hon. Gentleman was saying that the role of trading standards would be funded. The OFT will fund the aspect that I described, through the licensing fee. The OFT will pass on the money to trading standards.
However, there is a more general point about the future. The hon. Member for Wealden raised the issue of where trading standards fits, although not in specific detail. I was trying to help by pointing out that we acknowledge and recognise the work of trading standards. We acknowledge that local authorities have a keen interest in the future of trading standards. In the general debate that we shall have over the coming months about the future of the proposed CTSA, which came from the Hampton review, the issue of local authority funding relating to trading standards will be high on the agenda.

Michael Fabricant: To follow on from the points that my hon. Friend the Member for Wealden made, and for the avoidance of any doubt, is the Minister saying that there will be no further financial burden on trading standards, following resolutions passed in the Bill?

Gerry Sutcliffe: Yes.

Charles Hendry: I am fascinated by that because the advice that the Minister referred us to a little while ago from the Office of Fair Trading and which I read, as he suggested, states:
“It is also expected that the OFT will work closely with Trading Standards Services to implement the Bill. Additional work which may be carried out by trading standards services under new information gathering powers...will require new money in order not to adversely impact other obligations at local level (such as food safety inspections)”.
So, although he said to my hon. Friend the Member for Lichfield (Michael Fabricant) that there will be no additional work, it appears to me that there are new obligations on trading standards services, but they will not now be guaranteed the money from the Minister to ensure that they do not have to cut back in other areas to carry out those responsibilities.

Gerry Sutcliffe: That is very wide of the mark. We are referring to the clause relating to the licensing fee. All that affects the clause under the licensing fee will be funded by the additional fees. I will regret that I did this, but turning to the wider issue of trading standards, there is a discussion to be had in the future relating to the Hampton review—I am sure that the hon. Gentleman will quiz me on that over the summer and into the autumn—on trading standards. That will have an effect on local government. I want to reassure local government that the Government are keen to have discussions about the future in terms of where the CTSA and local government fit in. There will be no further burden on local government in relation to this clause.

Question put and agreed to.

Clause 27, as amended, ordered to stand part of the Bill.

Clause 28 - Applications for standard licences

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The clause gives the OFT the power to manage the application process more efficiently. It requires people to specify what businesses they want the licence to cover in the application for licences. That means that the OFT will be more easily able to identify and scrutinise higher risk sectors and monitor them more closely while reducing the burden on low risk sectors.
The clause will also enable the OFT to specify sub-categories, which is what is meant in the clause by “descriptions of business”. The clause also divides up the current licence categories of consumer credit, consumer hire, and ancillary credit business. Applicants can apply for a whole category licence, or one or more sub-categories. A whole category licence might cover consumer credit businesses. Within that, a sub-category licence might cover issuing secured loans of up to £10,000. The type of licence depends on the range of activity that the applicant is planning to carry out.
Licensees will be required to demonstrate fitness only for the sub-categories for which they have applied, rather than whole categories as now.  Someone who undertakes only a very limited type of credit activity will in future only have to apply and be assessed for fitness within that limited category.

Charles Hendry: Why is this matter being included in the Bill and not being dealt with through regulation? It is constantly evolving. One of the aspects relates to debt adjusting, an issue that was not known about 30 years ago. In 30 years’ time, new types of business will have been set up, but we simply do not know what they are at this stage. It appears that they will not be covered by this area of the Bill. Subsection (5), on the OFT powers, states that the OFT
“shall by general notice specify the descriptions of business which can be set out in an application”
and implies that the OFT may be able to bring forward new definitions. However, that appears to relate to descriptions of businesses rather than types of business. The Bill lists a number of types of business, which appear to be set in stone. Would it not be more sensible to deal with this through regulation instead?

Gerry Sutcliffe: I understand where the hon. Gentleman is coming from, but I do not think so. We must be clear about the change in the licensing regime from the Consumer Credit Act 1974 to what we are trying to achieve. There will be the whole licence and then the sub-categories, as set out clearly in the clause. We arrived at that through consultation and discussion with the stakeholders to ensure that we were very clear. I do not think that the scenario that he mentioned will happen. The descriptions that we have given are clear. He is starting to confuse me now because he keeps saying that the Bill is too general, but when we are very descriptive about what we mean, he picks me up on that. I hope that the confusion will clear up as the day goes on.

Charles Hendry: I shall try to assist the Minister immediately. We are calling for greater clarification of all parts of the Bill, but we have asked for that to be done in regulation in most cases so that there can also be flexibility. We have been trying to get a better understanding of what he wants to achieve so that there is no doubt about what the Bill aims to do.
Let me be clear: will the OFT have the power to deal with a new types of business? Subsections (4)(a) to (i) list several types of business. If a new type of business were to develop, would the OFT have the ability simply to change the list and add to it; would it have to try to fit the business into the list, even if that was inappropriate; or could we end up with a situation in which a new type of business would not be regulated because it could not be added to the list?

Gerry Sutcliffe: No, the OFT could not add to the list. That is why the Bill is drafted as it is. It has been set against consideration of the fact that there have been only two new categories in 30 years. The list will protect consumers and what we are trying to achieve will be clear to the industry. I therefore hope that the Committee supports the clause.

Charles Hendry: That is quite disturbing. It means that we expect the Bill to be on the statute book for 30 years because it is not a natural area of business for Governments to come tumbling back to for reconsideration. The Minister says that two types of business have developed in the past 30 years, which means that it is quite possible that two significant areas of business to emerge in the next 30 years will be unregulated. Surely it is better to allow for that possibility in regulation or to give the OFT the power to add to that list of businesses so that we ensure that all new types of business are regulated as we want.

Gerry Sutcliffe: My confusion is growing. We have consulted the industry and stakeholders, and only two new types of business have emerged in 30 years. The hon. Gentleman is right, although we intend to review the workings of the Act regularly because of the maturity of the market and the effects of it on the sector and our constituents. I believe that 30 years is too long, but the rate of change and what has appeared in the sector are important to the economy. In addition, the types of business are broad. We believe that we have provided the opportunity for new businesses to fit into the types of business defined in the Bill. I hope that that satisfies the hon. Gentleman and that he is able to support the clause.

Charles Hendry: I shall have one more go. Will the Minister reconsider that and determine whether it is appropriate to table an amendment on Report which says that the list of types of business should be reviewed, say, every five years? I know that he has tremendous foresight and vision, but even he might not understand all the ramifications of new types of business that might develop in the next 30 years. So will he reconsider the clause and see whether it would be appropriate to build in such a review?

Gerry Sutcliffe: I am prepared to do that because the hon. Gentleman obviously has something in mind that I clearly have not thought about. What types of business does he think should be covered that are not covered, given the broad range of definitions that we have included? If he can answer that, I might do as he asks.
Mr. Edward Vaizey (Wantage) (Con) rose—

Gerry Sutcliffe: It looks as if someone else might be able to give me an answer.

Edward Vaizey: In our debate on clause 19 in the previous sitting, the Minister said:
“we are not operating in a vacuum, and things can change dramatically.”—[Official Report, Standing Committee C, 23 June 2005; c. 50.]
That is the point that my hon. Friend the Member for Wealden is making. To quote the Secretary of State for Defence in the United States Administration, there are things that we know and there are things that we do not know, and there are things that we do not know that we do not know. My hon. Friend’s whole point is that we do not know what businesses might emerge in the next 30 years, which is why it is better to list them in regulations rather than in the Bill.

Gerry Sutcliffe: I congratulate the hon. Gentleman on trying to support his Front-Bench spokesman so admirably because he was starting to confuse most of us. The point is that the definition clarifies the types of business that will be in place because we have the standard licence and the sub-categories. The guidance on clause 30 sets out a further definition that may help the hon. Member for Wealden.

Michael Fabricant: In a spirit of helpfulness, I wonder whether subsection (6), which states:
“The power of the OFT under subsection (5) includes power to make different provision for different cases or classes of case”,
answers the question asked by my hon. Friend the Member for Wealden, or whether it is meaningless.

Gerry Sutcliffe: It is certainly not meaningless—what an outrage to declare any part of the Bill meaningless. Before the hon. Gentleman so helpfully intervened—if, indeed, that is what he did—I was going to say to the hon. Member for Wealden that in the spirit of consensus, as we try to move the Bill forward—

John Battle: Will my hon. Friend give way?

Gerry Sutcliffe: I will.

John Battle: I am amused that Opposition Members have moved from the mysticism of Donald Rumsfeld to the Bill. They should look at the explanatory notes. Helpfully provided under a clause that we have yet to come to—clause 30—they state:
“OFT may revise any guidance on fitness”
in the future. If the fitness test is open, it allows changing market circumstances and businesses, and assessment of the problem, to be taken account of. I do not think that there is a difficulty, although Opposition Members may have just woken up.

Gerry Sutcliffe: It is a bit unkind to say that Opposition Members are not awake. I hope they know that I will chastise my hon. Friends if they attack their awareness.

Charles Hendry: If the Minister had said five minutes ago what the right hon. Member for Leeds, West (John Battle) just said, we would not have had to have this discussion. I am grateful to the right hon. Gentleman for clearing up the problem, and on that basis we are happy to accept the clause.

Question put and agreed to.

Clause 28 ordered to stand part of the Bill.

Clause 29 - Issue of standard licences

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The clause introduces a broader fitness test that the OFT will use to decide whether someone is fit to hold a consumer credit licence. The current fitness test puts the emphasis on past behaviour. Under the new test, the OFT will assess  skills, experience and expertise in relation to consumer credit. Applicants must have in place the practices and procedures to ensure that they remain fit.
The clause builds on the current fitness test. The OFT will continue to consider an applicant’s past behaviour, which might include evidence showing that a licence applicant or an associate has committed an offence involving fraud or violence. It may consider evidence that an applicant or associate has contravened any consumer credit law, including the Consumer Credit Act 1974, part XVI of the Financial Services and Markets Act 2000, or any equivalent consumer credit law in another European economic area state. Evidence that an applicant has practised discrimination or engaged in unfair business practices will also be considered. All that evidence demonstrates fitness from past behaviour, which is an important element of the current test. The Bill will not prevent the OFT from taking such things into consideration.
The new broader fitness test gives the OFT explicit power to require evidence of future competence to provide credit. For example, it may require an applicant to give evidence to show how he would ensure that his employees understood what was required of them. Evidence might also show that the employees understand their credit products and can explain them to consumers. The OFT will not require evidence of expertise to demonstrate fitness. Applicants will be required to demonstrate a base line of competence.
The OFT will be required under clause 30 to produce guidance on how it will assess fitness. That will be done as soon as possible after the clause commences. Hon. Members will have seen the draft guidance and information packs. The guidance will be subject to full consultation after Royal Assent and will be available to applicants and licensees in good time.
The ability to require evidence on future competence to provide credit will better enable the OFT to regulate licensed businesses. It will drive the rogues out of the market and enable more effective and fairer competition.

Charles Hendry: May I push the Minister for clarification on the clause, and particularly on its retrospective nature? On page 18 of the explanatory notes, there is a list of practices deemed to be inappropriate. One of them is “has practised discrimination”. That is clearly in the past tense. Some forms of discrimination that are now illegal were not illegal a while ago. For example, we would have found discrimination on grounds of sexual orientation or of gender morally reprehensible, but if they were not illegal at the time when they occurred, could they be taken into account by the OFT? There are also continuing acts of discrimination—for example, in relation to the sale of goods and services, and on sexual orientation. If an organisation were to practise that sort of discrimination now, would that also be grounds for refusing it a licence?

Gerry Sutcliffe: Again, the powers of the OFT are in line with the Cabinet Office concordat. It has to act in a reasonable and proportionate way. That is already in  the 1974 Act and will not change. There is nothing to concern the hon. Gentleman in the parameters that he mentions. The 1974 Act and all the discrimination issues, plus the updated position, are covered, as well as the powers relating to proportionality and the need to operate within the concordat.

Question put and agreed to.

Clause 29 ordered to stand part of the Bill.

Clause 30 - Guidance on fitness test

John Battle: I beg to move amendment No. 38, in clause 30, page 24, line 7, at end insert—
 ‘and that guidance shall include a duty on licence holders to lend responsibly.’.
As in any Bill, it is necessary to refer to previous clauses. This clause comes in a cluster of clauses that deal with the fitness of a business to hold a licence in the first place. It inserts proposed new section 25A after section 25 of the 1974 Act. That requires the OFT to prepare and publish guidance on how it determines the fitness of a person to hold a licence. In light of the previous debate, I would add that the OFT may revise the guidance on fitness at any time. That opens up the question of who is fit to hold a licence. That will be an evolving process, and it will keep pace with market developments.
However, I want to turn the telescope around and suggest that the reference to fitness concerns the person holding the licence. There is an ambiguity because on first reading
“whether persons are fit persons as mentioned in section 25”,
one could be forgiven, having glanced through the Bill, for thinking that it refers to the poor lender, but it is the person who receives the money who has to be in a fit position to survive the loan that he has received. It seems that we are more concerned about the fitness of the coach than we are about that of the athlete to keep up, or the team member to play. If all the emphasis is on the fitness of the coach, there could be a case in which the team is of no use, but the coach is perfectly fit and all the athletes are flogged to death. That is what worries me, and that is why I drive the analogy. The lender could lend to people who are not able to pay back, and who might well know that and carry on regardless.
Lenders are eager to assert that they are responsible. We have had briefings from banks and lenders who say that they are good people. Most are. Their purpose is not—to coin a euphemism and to use language that I am sure is not parliamentary—to screw people for the sake of it. Yes, they want to make a fair income, but the majority believe that they are doing it in a fair way. However, how do they go about their business and how do they check repayments?
To give a practical example, there is plenty of evidence that it is easy to gain credit. We had this debate in Committee in the previous Parliament, and there were plenty of examples across the board. I have  made it clear that my primary concern is with doorstep lending, but credit is easy even in the credit card market. Cards in an envelope fall through one’s letter box and a PIN is supplied; just sign and go. We all know about that, but what checks are made? Most lenders now use an automatic process to score credit applications. They use sophisticated computer modelling but do not check whether the person can afford the credit repayments.
Lenders do not carry out a full income test, as they do for mortgages. One can borrow more than the amount of their mortgage through credit companies without even a fraction of the checks that are done when papers are filled in for a mortgage. That is irresponsible lending. Lenders do not examine the borrower’s income and expenditure to check whether they can afford the credit repayments but tend to rely on information held in credit reference files, which usually involve the payment records of past credits and loans. If someone pays back loans and keeps up with payments, they are a good creditor and can borrow more. Lenders do not ask whether borrowing more will push the payments out of the reach of the borrower but simply ask whether they will keep up the payments. They do not ask whether that will mean not being able to live or keep one’s family. If they simply repay the money, they will have a good record.
Someone with no past record of default will be regarded as a good credit risk whether or not their outstanding credit commitments are beyond their income. They might have to find the money in other ways. As long as they are paying back the loans, they will be a good credit risk.
Unfair sales techniques are often used. We could go into that in more detail. I am sure that all hon. Members are aware of such techniques from their ordinary constituency casework, from the press and so on. Sometimes people are pushed to take further credit without any checks at all on their ability to repay.
The key question should be whether a person has the ability to pay back without going deeper and deeper into debt. I make this point again; those on doorstep loans are not likely to go to court because, at any hint that they cannot repay, the companies offer them another deal or an extension. They will even advise other companies that can give another loan. The borrower is pushed further and further out without any checks as to whether they are able to repay the loan.
In the previous Parliament, I referred to the Lord Chancellor’s advice to the magistrates courts. They are under an obligation to check whether a person who has been fined for non-payment has the ability to pay the fine. It is not only illogical but a ludicrous economic situation to fine people on top of money that they owe but cannot possibly pay back. People are driven into debt that is totally unsustainable and that they cannot get out of, and it must be dealt with in a different way. There is guidance to the courts to ask whether people have the ability to repay.
We need to tackle what I would describe as irresponsible lending that drives people who borrow into deeper and deeper debt and desperation. It is not  enough for the companies to say that they have checked the credit rating, that the person has paid their instalments and that therefore they are okay. All that that means is that the company is okay because it is getting interest. The person’s ability to manage their budget at the other end is not taken into consideration.
I simply suggest to the Minister that he ask the OFT to include in its guidance a duty on licence holders to lend responsibly. We must get that phrase into the legislation. It is fairly bland and vague. Like the unfairness test itself, it is open-ended, but it would give the OFT a handle on changing marketplaces and new kinds of companies. I recommend it to the Minister and look forward to a positive response.

Charles Hendry: I congratulate the right hon. Gentleman on introducing the amendment. He raised the matter on Second Reading and asked us to consider it sympathetically. He has made a powerful case for it so far.
It is also a particularly appropriate time to discuss the issue, in the light of yesterday’s headlines on consumer debt. For example, The Independent carried a story about the level of unsecured debt having doubled in the past eight years. The average unsecured debt per head is 42 per cent. of average earnings now compared with 29 per cent. in 1997. The rise in unsecured lending was 16 per cent.; the largest annual rise in eight years.
We are considering a matter of great concern, and indeed the Bank of England issued a warning yesterday about the risk to the UK’s financial system from the surge in consumer borrowing and from people defaulting on debt when those who have borrowed money simply cannot afford to repay. We have also tabled two new clauses, one dealing with credit card checks and one with credit limits, that try to deal with some of the abuses that we feel are apparent. I hope that the Minister will be able to respond in due course.
There are too many examples of lending that has not been carried out responsibly. One of my colleagues has written to me with a letter from a mother in her constituency, in which she writes:
“My son...aged 45 suffers from schizophrenia and is in receipt of anti-psychotic medication for this illness. He has built up a credit card debt of over £30,000 for which he pays interest of about £500 per month. I do not know the exact amount because he will not show me the credit card statements. The incapacity benefit he receives can just about service the interest on the credit card debt. He does not want to go bankrupt and he threatens suicide. In view of his illness it is very difficult to reason with him and he is very reluctant to give up the cards. I would be most grateful if you would contribute to this Bill now before Parliament to help him and people in similar circumstances to overcome and prevent this serious and tragic problem.”
That is not a unique issue; all of us have seen constituency cases like that. On Second Reading I referred to Stephen Lewis, a person with an income of £22,000 who ran up debts of £70,000 on 19 different cards and ultimately took his own life when he could not afford to repay those debts.
Those issues link into data sharing, and we are tabling a new clause on that as well. There should be a case for lenders to lend in a way that would be seen to be evidently responsible. We have described cases that do not involve responsible lending because in part the financial institutions did not know from where else the people were borrowing. More needs to be done to address the problem, and I will be interested to hear how the Minister responds to the amendment.

Michael Jabez Foster: I very much support the principle behind the amendment tabled by my right hon. Friend the Member for Leeds, West. I seek the Minister’s view about how he could, if not accept the amendment, provide for the balance of responsibility that must form the basis of any credit agreement. As we discussed during our debate about clause 19, some of us believe that that clause may be the place for a definition of an unfair agreement or relationship in a form that we understand, without having to leave matters to the judges. That debate has passed, so if we could deliver something at this stage, it would provide guidance about what is an unfair deal. If a creditor lends irresponsibly, that in itself is an unfair relationship and should be taken into account.
I want to press further the point that my right hon. Friend made about the inability of the courts to mitigate situations in which over-lending has occurred. Cases that finish up in the county court frequently mitigate the repayments and, indeed, the very small repayments often made after taking full account of the debtor’s means. However, the nature of those debts is that often they do not reach the courts and for that reason, it is important to provide some sort of fairness for people at that stage.
If the amendment is not acceptable to the Government, I hope that an alternative will be in place to introduce to the legislation the principle of responsibility on the part of the lender.

Gordon Banks: I should like to pick up on the point made by the hon. Member for Wealden, who said that extended data sharing was absolutely vital to the delivery of responsible lending. The extension of data sharing must be the way forward to deliver the amendment tabled by my right hon. Friend the Member for Leeds, West.

Gerry Sutcliffe: I congratulate my right hon. Friend the Member for Leeds, West on the amendment. I hope to be able to prove that it may not be necessary, but we will see how we go. I say to the hon. Member for Wealden and my hon. Friends the Member for Hastings and Rye (Michael Jabez Foster) and for Ochil and South Perthshire (Gordon Banks) that I know this was the core element on Second Reading for all hon. Members in relation to our concern that lending was not responsible.
The whole purpose of the White Paper, the Bill and the wider Government strategies is to try to create greater transparency to ensure that people who lend money do so responsibly and appropriately and have everything in place to ensure that there is transparency. The consumer has to know what he is  letting himself in for in any agreement and that is why we brought into play the regulations relating to adverts for loans, the greater transparency and the calculation. I agree that the issue of data sharing is important and I shall return to that later on in the debate.
We have seen tragic cases, and it was my experience to meet Mrs. Lewis and go through with her the issues affecting her husband with regard to how he was able to borrow so much money given his income. I did not find it a very pleasurable experience. There are too many of those cases. I note what the hon. Member for Wealden has said about the figures and the announcements yesterday. We are all concerned about the level of debt. The only qualification I would make—I do not intend to score any particular points—is that when the economy is doing well, people feel more able to borrow.
In most circumstances, people can handle credit well. I do not think that the Committee is trying to say to anyone that credit is not a good thing if handled and used in an appropriate way. However, when it is not and people are put into a very difficult position, that is not acceptable. All of us, in our constituency casework, have examples of where things have gone horrendously wrong. Suicide is tragic, but many other people’s lives are affected for a period of time by the debt they get themselves into.
To turn specifically to the amendment that my right hon. Friend has tabled, we all agree that lenders have to be responsible when lending to consumers. It will come as no surprise to my right hon. Friend that I have tried to resist definitions throughout our deliberations, which was the reason for the principal argument on clause 19 regarding the unfairness test. If we are very specific about an issue, we could undo what we are trying to achieve. For many, responsible lending imposes a requirement that lenders do certain things before extending credit. However, the things that a lender may take into account in the case of one debtor may be very different to those of another. It will depend on a debtor’s circumstances.
Any duty to lend responsibly would mean defining what is, and what is not, responsible lending. That is the point I made earlier about defining the position, and I explained that point when we discussed the unfairness test. I do not think that a list of things that lenders must do is enough. It would encourage them to think that as long as they have complied with a list, they have lent responsibly, but that cannot be so in all cases. The OFT guidance cannot impose a duty: it is guidance.
However, the draft OFT guidance on fitness, which I provided to hon. Members before the Committee, makes clear the sort of issues the OFT will look at when considering the fitness of an applicant for a licence. Page 4 of the draft guidance says:
“Fitness takes into consideration any matter which may have a bearing on your ability to deal with consumers, including credit competence and evidence of trading practices”
Page 9 of the draft guidance lists examples of specific unfair practices that I am sure hon. Members would agree go to the heart of responsible lending, as do the practices in relation to non-status lending listed in the  annex to the draft guidance. The OFT will, of course, consult on its draft guidance and will update it from time to time so that account can be taken of other examples of irresponsible lending that may come to light.

James Brokenshire: The interesting thing here is the lack of willingness to embrace the concept of responsibility, which is what lies at the heart of the amendment that has been put forward by the right hon. Member for Leeds, West. The Minister talks about subsequent amendments to the OFT guidance if it is felt that things are not being conducted in a reasonable fashion. In many ways, one of the weaknesses of the structure that is set out in clause 30 is the lack of influence from any outside body. It is interesting that this provision differs from certain other provisions later in the Bill, such as clause 54, subsection (3) of which states:
“No statement of policy shall be published without the approval of the Secretary of State.”
There is no such measure in clause 30, but if there were it would introduce some sort of check or balance in terms of the guidance or direction that will be given. It is interesting that there is reluctance about introducing that element of reasonableness, despite what the Minister may say about the guidance.

Gerry Sutcliffe: I am grateful to the hon. Gentleman. I understand what both he and my right hon. Friend the Member for Leeds, West are trying to achieve. I argue that the OFT guidance may be of assistance, but if I do not satisfy the Committee of that, I am prepared to reconsider the issue.
It might assist the Committee if I first talk about some related OFT issues. As we have discussed, the OFT will from time to time take into account examples of irresponsible lending that come to light. It also has guidelines on non-status secured lending, which involves the sector of the market that lends to people with poor credit histories or limited means. The OFT encourages lenders who offer unsecured products in that sector to comply with the guidelines, which set out a series of principles to which lenders should adhere when lending to non-status consumers.
If I may, Mr. Conway, I shall go through the guidelines. They state that
“there should be transparency in all dealings with potential and actual borrowers, with full and early disclosure and explanation of all contract terms and conditions and all fees and charges payable
there should be no high-pressure selling, and adequate time should be allowed for the borrower to reflect on the terms and conditions of the loan and to obtain independent advice before signing
advertising and other promotional material should not mislead, and there should be no cold-calling or canvassing off trade premises without the borrower’s prior consent
brokers should disclose at the outset their status with regard to the borrower and the lender, and the extent of the service offered to the borrower, together with any brokerage fee or commission payable by the borrower or the lender
lenders should take all reasonable steps to ensure that brokers and other intermediaries regularly marketing their products do not engage in unfair business practices, or act unlawfully, and that they serve the best interests of the borrower
contract terms and conditions should be fair, and should be written in plain English to ensure as far as possible that borrowers understand the nature of the loan agreement and their rights and responsibilities under it
there should be responsible lending, with all underwriting decisions subject to a proper assessment of the borrower’s ability to repay and taking full account of all relevant circumstances
any ancillary charges (for example, on default or early settlement) should be brought to the attention of the borrower before the agreement is entered into and should reflect as closely as possible the costs reasonably incurred by the lender and not already recovered at the time when the charges are made.”
The guidelines make it clear that:
“Lenders should comply at all times with the principle of responsible lending”,
and that all underwriting decisions
“should be subject to a proper assessment of the borrower’s ability to repay, taking full account of all relevant circumstances”.
The OFT will revise the guidance once the Bill becomes law. With that explanation, I hope that my right hon. Friend will withdraw his amendment. However, I give the Committee the undertaking that, if we can strengthen the position on Report, we will look at that.

John Battle: I am grateful to the Minister for his response, and I welcome his sentiment that he understands what I am trying to do. We have come some way, but I should like to go a little bit further. The concept of responsible lending focuses on the lender doing the right thing and—I am being harsh—on the lender covering their back by doing everything according to the spirit and letter of the law. That is good, and should be done, but I want there to be more focus on the borrower.
I want to respond to something that the Minister said. I thought, “Oh my God, the word ‘responsible’,” as I do not want to have a great row about the definition of that word. I defer to colleagues with legal expertise, but I imagine that a massive issue in most court cases is whether a person was responsible for their actions when they carried out a crime.
Someone tried to take me on in a big way because they said that I was not a responsible MP. He had written to me, so I was responsible and responded. I am always conscientious in replying to my constituents, but I received the answer, “Yes, but you did nothing. You didn’t solve the problem.” The problem was that someone else’s cat was infringing on his property, but I did not think that I could solve that very easily. We get all kinds of cases, but I went around for days afterwards wondering whether I was a responsible person. I do not want to go there with the amendment. I do not want courts asking how we defined “responsibly”. I want to focus on people’s ability to pay back.
Reference has been made to the wider economy, and the Opposition spoke about lending. The House has a consensus on lending; we all worry about it when the economy is doing well. The Minister said that people handle credit well when the economy is doing well, but I suspect that they take greater risks and that they push the boat out further. For instance, people now borrow  fives time their annual income with their mortgage; it used to be two and a half times. People may say that the bubble in the south-east pushed the figure up to five and that it will all come out in the wash, but I am not so sure. As we all know, if the economy declines and people’s boats are too far out, they could find themselves in incredible financial difficulties.
We should not go down the road of responsible lending but focus instead on people’s ability to pay back. Some might accuse me of saying that the lenders should consider not just the terms and conditions of loans, with their agreements and hidden clauses, but the budget of those to whom they are lending. Some hon. Members might then say, “Ah, if you want a full outlay of their income and outgoings, that is means-testing.” I understand the stigma of means-testing, but it could be argued that tax forms are a type of means-testing—they assess people’s income and their ability to pay; that is how their tax bills get sorted. I suggest that, if we can ask for tax returns, we might consider people’s incomes and be a bit more open about their ability to manage their money.
I warmly welcome the Chancellor’s announcement this morning, but I want the money to be available not only to those in difficulties, whose boats are right out and who cannot pay back. We have to do a heck of a lot to educate people. Indeed, the hon. Member for Wantage (Mr. Vaizey) spoke about the need for financial education and the most basic money management skills. We could all improve our circumstances with a little more of that. We could include the subject in adult education courses. We should be more user-friendly, not simply telling everyone how to manage on a low budget and assuming that everyone is poor, but being a bit more open about financial management and household budgeting. People are not catching on to that as an innate form, and many are falling further and further behind, and that will build up into a debt bubble.
The ability to repay, the ability to pay back, is important. It will enable people to be part of a conversation, instead of lenders simply saying to those who have so far paid their loans and who therefore have a good credit rating that they will lend them more, which will mean borrowers getting further out and wanting more. I cannot think that that is responsible. The letter of the law may say that it is responsible. It may be responsible under the Companies Acts for companies to tell people their terms, to make clear the hidden clauses and to send regular letters letting them know how they are getting on, but I suspect that it is not enough. However, I warmly welcome the Minister’s offer to continue a conversation on the subject.
I shall push a little further in those conversations rather than drive further in a debate about what is meant by responsible. I do not want to go there. If the Government can help by looking at the problem in a more positive way, one that will ensure that the OFT’s guidance is absolutely clear and that it includes information on people’s ability to repay, I shall happily withdraw the amendment.

Charles Hendry: I, too, am grateful for the Minister’s comments, but I join the right hon. Gentleman in encouraging the Minister to go that bit further. One has only to look at the wording of the amendment. If the words were changed around, the amendment would become a motherhood and apple pie thing. If companies were to be allowed to lend irresponsibly, we would all say that it must be wrong. Therefore, the thinking behind the amendment is something that we should all support instinctively.
The Minister quoted from the guidelines and highlighted one guideline that said that there should be responsible lending. It is not far from that to saying that we should put in the Bill—in primary legislation—a requirement to lend responsibly. It would make lenders think that we were serious if there were not just guidelines but a measure enshrined in an Act of Parliament.
We all recognise that we cannot take account of all circumstances. We know that some people will not tell the truth about their circumstances—they will not admit to other sources that they have borrowed from. By not telling the truth, they will still be able to build up debts that they cannot afford. Even with better data sharing, I do not think that we could expect lenders to know when people are not telling the truth. We also know that people’s circumstances will change, so that what may be affordable for them when they take out a loan becomes unaffordable in due course. Again, as long as the lending was responsible at the time of lending, the lender would have fulfilled these criteria.
We need to be aware that we live in a world in which advertising is designed to make us think that we can afford anything. The motor pages of our local newspapers contain adverts that say, “You can have a Jaguar for £200 a month”. We might think, “Whoopee! A Jaguar for £200 a month”. The Deputy Prime Minister has probably taken up many of those offers. It is only when one looks at the way in which the loan is structured that one comes across a colossal payment at the end and suddenly realises, “Actually, I can’t afford that and it will cost more than if I went to the garage and bought a car outright.” The advertising is designed to make us all think that the debt is something that we can afford more easily than we can.
We are looking for greater clarification in the Bill. There should be an onus on people to make sure that they lend responsibly. In most cases, they do. In most cases, there is not an issue. However, in too many cases, lenders do not act responsibly. That must be our priority and our concern.

James Brokenshire: I emphasise again the points made by my hon. Friend the Member for Wealden and the sentiment that lies behind the amendment that was tabled by the right hon. Member for Leeds, West, which is the concept of responsibility. On Second Reading, I highlighted the case of a refinancing transaction in which somebody borrowed some money and was offered additional credit by another provider, which worsened the problem that they got into. The question is: was the person who lent them the money fit to lend? Arguably, they were. Did they act responsibly or reasonably? Probably not, considering  the circumstances and the borrower’s ability to continue to repay. It is the concept of responsibility that we want to press the Minister to embody further.
It is all very well saying, “Okay, we’ve set out guidance on whether somebody is fit to obtain a licence”. However, we also need to address and to push further the concept of competence. I hear what the Minister said about that. We also need to push the concepts of responsibility and of demonstrating whether a person will act in a responsible fashion.
In conclusion, this has been an interesting and instructive debate. I hope that the Minister will hear the message from the Committee about people acting responsibly and will follow the matter through.

Edward Vaizey: I support the remarks of my hon. Friends and the amendment that was tabled by the right hon. Member for Leeds, West. It is an exciting amendment. Perhaps that is an unhelpful adjective to use, because, when a Minister or his officials hear the word “exciting”, they run for the hills.
In the past few years, the concept of corporate social responsibility has gained ground and credibility in this country. Many trees are felled in order to produce environmental reports showing that a company is socially responsible. As far as I am aware, no legislation enshrines the need for a company to behave responsibly. In my view, there is no more important need for a company to behave responsibly than in the area of consumer credit.
It strikes me as bizarre that someone who applies for a mortgage must jump through several hoops to secure the funds, even though there is a property as security, but that to obtain an unsecured loan there are barely any hoops to jump through. Lenders come knocking on the door. One can, normally, barely open the front door for the amount of junk mail and direct mail that lenders have sent, offering credit cards and loans. It is not possible to drive down a motorway now without seeing an ad-van parked in a field, offering a loan, yet no hurdles have to be jumped so that credit lenders can assess whether the person to whom they are lending has accumulated too much debt, has too many credit cards, or is simply trying to manoeuvre debt along into the never-never. To enshrine the amendment in the Bill, and then in law, would be a wonderful, forward-looking step that the Government could take to send a clear signal to financial institutions that they should start to behave responsibly.
As the right hon. Member for Leeds, West so eloquently put it, although the lenders can look to their own back office functions and tick all the boxes, they must look outwards and check whether they are flogging their customers to death.

Gerry Sutcliffe: I congratulate all the hon. Members who took part in the debate, because I understand their sincerity in pursuing their aims. I hope that they do not doubt my sincerity in trying to accommodate those aims in a framework that will allow the Bill to be successful. Relevant to that is the consensus that we discussed at the beginning of our exhaustive  discussions on improving the Bill generally, with regard to transparency and undertakings. Aspects of the matter include putting pressure on companies to be more transparent and open about their procedures, and the giving of advice and support to people who are in debt, through the financial inclusion money and through other aspects of what we are doing.
I heartily agree about financial education and support for citizens advice bureaux and all the agencies that pick up the pieces when people have problems. We are trying to pursue that course throughout. However, I got the feeling from the debate that hon. Members think that the OFT lacks teeth and that going along with what it says is almost optional. It is not. Not complying with OFT guidance raises questions about a lender’s fitness and could lead to licensing action, so there are teeth. As to the guidance on non-status lending, concern was raised about the proper assessment of a borrower’s ability to repay; taking full account of all relevant circumstances is the key concern. The OFT guidance includes that, as well as the concept of responsible lending.
In the spirit of what my right hon. Friend the Member for Leeds, West wants to achieve, we shall consider the matter and try to make the provisions clearer. I do not want to play the definition game and talk about what is “responsible” or “reasonable”, or what is unfair or not unfair. The unfairness test is all a matter of relevant circumstances and it could be argued that relevant circumstances include the ability to repay.

Charles Hendry: I am grateful to the Minister, particularly for letting me interrupt him in full flow. May I get this clear? He talked about the guidelines that say that lending should be responsible. He has implied that his objection to the amendment is that it is unnecessary because the matter is dealt with in the guidelines. He has not, I think, said anything about why he believes the amendment is flawed. I should be grateful to know any particular reasons for his thinking that the requirement for lenders to lend responsibly should not be included in the Bill.

Gerry Sutcliffe: For the very reason that we do not want to get into an argument on definitions. There would be a definition of “responsible” and people would be able to hide behind that, because it might not be wide enough to cover all the relevant circumstances. Perhaps the discussion that we should continue is about how to develop the matter. It is in that spirit that I hope my right hon. Friend will withdraw the amendment, on the undertaking that we shall discuss the matter further and see what we can come up with.
Mr. Vaizeyrose—

Gerry Sutcliffe: I will give way to the hon. Member for Wantage, but the words “exciting”, “visionary” and so on cause me some concern.

Edward Vaizey: If the Minister is happy for the word “unfair” to appear unfettered in the Bill and to allow the courts to define it, surely it should be possible to have the word “responsible” in the Bill and to allow the courts to define that.

Gerry Sutcliffe: I hear what the hon. Gentleman says, but I must, unfortunately, disagree with him. We are worried that the amendment would not be workable because guidance cannot impose a duty. I want to discuss that further with my right hon. Friend.
Despite the sincere attempts to persuade me to accept the amendment at this stage, it is not possible for me to do so. I hope that my hon. Friend will recognise that we are trying to be clear about what we mean. I repeat my offer of further discussions to see what we can do and to return to the matter on Report.

John Battle: My greatest fear is that the whole business will go to the courts and remain there for years so that people will not receive the basic justice that is in the Bill. I am reluctant for rows about the definition of “responsible” or “responsibility” to clog up the courts for years and for people not to have a good working relationship with lenders. My aim is to protect people who suffer from unscrupulous lenders who should be driven off the park by the OFT. When it comes to the fitness test such lenders should not allowed anywhere near the park to start with and I hope that that will start to happen as a result of the Bill.
However, other lenders are doing a reasonable job and I do not want to drive out all lenders. We need people who lend money to other people. I do not want the problems to go to the courts. I want a reasonable conversation between lenders and borrowers so that things work out for both parties. I want a fairer balance for borrowers. Rather than driving lenders to the courts to discuss whether they have been responsible, I want the OFT to be clearer and more forceful in explaining to lenders that the issue is not about protecting their backs, but about having a decent relationship—it might not be just on paper—with borrowers.
I do not mean that when final payments are due the lenders send a man with a dog to threaten a young woman with a child on the grounds that the arrangements have changed and her loan charges have increased because they forgot to tell her about the extra charge they added, saying, “We have come for an extra £20. Did you not realise that it was due? By the way, my dog barks ferociously so watch your child.” Such conversations are out of order and we want to drive those people out of the marketplace. That puts the onus on those left in the marketplace to have a better and stronger relationship with the people to whom they responsibly lend. In that spirit, I am prepared to withdraw the amendment and to continue the conversation.
I beg to ask leave to withdraw the amendment.

Hon. Members: Object.

Question put, That the amendment be made.

The Committee divided:  Ayes 6, Noes 10.

NOES

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

James Brokenshire: I wanted to follow up a point that I briefly alluded to earlier. The Minister might have addressed it, so I apologise if I missed it. The clause inserts proposed new clause 25A into the 1974 Act, but is different from where similar language crops up elsewhere in the Bill. For example, clause 54 inserts into the 1974 Act proposed new section 39C, subsection (3) of which states:
“No statement of policy shall be published without the approval of the Secretary of State.”
No such provision is included in clause 30. Some forthcoming amendments concern the perhaps unfettered nature of the OFT’s powers. Can the Minister explain why that thought process is adopted elsewhere in Bill, but not in clause 30?

Gerry Sutcliffe: We had an excellent discussion about the amendment that my right hon. Friend the Member for Leeds, West tabled, but it would be useful to set out the basis of the clause. Clause 29 introduces the broader fitness test, which the OFT uses to decide whether someone is fit to hold a consumer credit licence. Clause 29 requires the OFT to prepare and publish guidance on how fitness will be determined. The OFT will be required to consult on fitness guidance before the new fitness test comes into effect. If the OFT revises its fitness guidance, it must publish and have regard to the most recent version. Hon. Members will see the draft guidance in the information packs which will be subject to consultation after Royal Assent. The basis of that is to explain that the policy decision that comes later is clear and precise about what we are trying to achieve.
The only part of the legislation that requires the OFT to obtain ministerial clearance concerns a statement of policy in relation to civil penalties. That is a special case, which allows the OFT to impose fines for breaches under the licensing regime, which goes beyond its normal role as a market regulator. The Secretary of State’s approval is required in relation to civil penalties. That is the difference. I hope that that helps the hon. Gentleman.

James Brokenshire: I wonder if I could press the Minister. I suppose that in some respects I am looking for consistency. There is a clear inconsistency. I hear what the Minister says about the distinction between a regulatory and a quasi-judicial approach. However, I  think that I am right in saying that three other clauses contain similar provisions. The next one that we shall come to is clause 42, which would insert a new clause 33A into the 1974 Act, in relation to which I shall in all likelihood raise the same issue, as the same point about consistency applies.
That is particularly so as, in clause 30, proposed new section 25A(3) of the 1974 Act says:
“The guidance shall be published in such manner as the OFT thinks fit”
and proposed new subsection (4) says:
“In preparing or revising the guidance the OFT shall consult such persons as it thinks fit.”
That is the concept that I am trying to get hold of. The OFT’s powers are quite wide and the idea of the Secretary of State having a role, which is accepted in subsequent clauses, could be helpfully applied in clause 30 and the other example to which I have referred. I ask the Minister to consider trying to rein in the OFT’s powers and to maintain checks and balances.

Gerry Sutcliffe: We will return to the issue in further discussions on the OFT’s powers. If the hon. Gentleman has time, it might help to look at the issues arising from the Enterprise Act 2002; the differences between responsibilities and the reasons the Government tried to prevent Ministers from interfering in pure competition issues. That is where the different roles come from. In the context of the Bill, ministerial involvement relates to civil penalties and similar matters that a regulator should not be able to impose unilaterally. It should come back to the Government for guidance.
The OFT is not unfettered. As I said to the hon. Member for Wealden, it is responsible in terms of the concordat on how it should operate. There is the annual report and the OFT can be challenged. It has regular meetings with the Secretary of State and other Ministers and there is an opportunity to question what it does. It must act reasonably and proportionately.
The difficulty with the clause is that there is clearly a fundamental difference between us, as was proved by the fact that the amendment was pushed to a vote. Whatever I say about this clause will not convince Opposition Members. I hope that I have explained to the hon. Member for Hornchurch why the differences exist and how the issues relating to the Enterprise Act 2002 might be helpful.

James Brokenshire: I thank the Minister for his comments and I will probably take his advice on the 2002 Act. I am grateful for his guidance and assistance, but I reserve my position on the consistency argument. It is a matter of when something strays between a regulatory function and a penalty-type function. In some ways, that may relate to the second example in terms of requirements, which we will debate later.

Question put and agreed to.

Clause 30 ordered to stand part of the Bill.

Clause 31 ordered to stand part of the Bill.

Clause 32 - Winding-up of standard licensee’s business

Amendment made: No. 26, in clause 32, page 26, line 17, at end insert—
‘()Without prejudice to the generality of paragraph (c) of subsection (3), a requirement specified under that paragraph may have the effect of—
(a)preventing a named person from being an employee of a person carrying on activities under the authorisation, or restricting the activities he may engage in as an employee of such a person; or
(b)preventing a named person from doing something, or restricting his doing something, in connection with activities being carried on by a person under the authorisation;
(c)securing that access to premises is given to officers of the OFT for the purpose of enabling them to inspect documents or to observe the carrying on of activities.’. —[Mr. Sutcliffe.]

Question proposed, That the clause, as amended, stand part of the Bill.

Charles Hendry: I would be grateful to the Minister for a small clarification. Would access to premises be gained directly by officers of the OFT or by the local trading standards services acting on behalf of the OFT? If it is the trading standards department, that will impose an additional burden on its work load, which brings us back to who pays for that and whether the trading standards department will be reimbursed for such activities, or will it have to make the money up by cutting back in other areas.

Gerry Sutcliffe: As I understand it, officers acting on behalf of the OFT could be trading standards officers, but the cost would not be transferred to the local authority. It would be borne by the OFT.

Question put and agreed to.

Clause 32, as amended, ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.

Clause 34 - Definite and indefinite licences

Gerry Sutcliffe: I beg to move amendment No. 20, in clause 34, page 28, line 40, after ‘fit’, insert (subject to subsection (1E))’.

Derek Conway: With this it will be convenient to discuss Government amendments Nos. 21 and 22.

Gerry Sutcliffe: These are technical amendments and I hope that the Committee understands their consequential nature in the light of what was agreed previously.

Amendment agreed to.

Amendments made: No. 21, in clause 34, page 29, line 4, at end insert—
‘(1E)Where a licence which has effect indefinitely is to be varied under section 30 or 31 for the purpose of limiting the licence’s duration, the variation shall provide for the licence to expire—
(a)in the case of a variation under section 30, at the end of such period from the time of the variation as is set out in the application for the variation; or
(b)in the case of a variation under section 31, at the end of such period from the time of the variation as the OFT thinks fit;
but a period mentioned in paragraph (a) or (b) shall not exceed the prescribed period.’.
No. 22, in clause 34, page 29, line 13, leave out ‘(1D)’ and insert ‘(1E)’.—[Mr. Sutcliffe.]

Clause 34, as amended, ordered to stand part of the Bill.

Clause 35 - Charges for indefinite licences

Question proposed, That the clause stand part of the Bill.

Charles Hendry: Can the Minister give us some additional guidance on the level of charges that he thinks likely for indefinite licences? Also, is there a right of appeal against termination? The explanatory notes state on page 19:
“Failure to pay a periodic charge in respect of a standard licence during the payment period (or extended payment period) results in the licence being terminated and details of licences terminated for this reason must be kept on OFT’s public register.”
Is there a right of appeal against that? Otherwise it would seem that the OFT has a complete decision-making authority for something on which people would have a natural right to challenge it.

Gerry Sutcliffe: To help the Committee I shall set out what clause 35 does. Licence applicants and licence holders will be required to pay a charge towards the cost of the functions of the OFT. The clause requires licensees to pay a periodic charge, probably every five years. The periodic charge is necessary, given the move to indefinite standard licences as the norm. The periodic charge will keep the licence current. The OFT will issue a general notice setting a level of periodic charges—that is, the notice to which I referred earlier, which hon. Members have had. It is possible that the licence charge will increase from its current level, but the approval of the Secretary of State and Her Majesty’s Treasury will be required before changes are set.
To reflect the cost of monitoring, the OFT may set licence charges according to the category or sub-category of activity that is entered into. As we said, very narrow licences may attract a reduced charge and licensing very high-risk sectors may attract a higher charge. Sometimes a licensee may not have to pay an application or maintenance charge. Licensees will be required to pay the periodic charge offsetting the OFT’s general notice before the end of their payment period. The charge level will be set out by the OFT in the general notice. That notice will be issued a specified number of days before the end of a licensee’s payment period.
The provision ensures that licensees will get sufficient notice of the level of the charge needed to maintain their licence. I said that a doubling would mean a fee in the region of £550. The payment period must apply and the specified number of days will be set by regulation. The charge, as has been said, will cover more effective monitoring of licensees, to ensure that they remain fit to hold the licence. That will include visits to business premises, where appropriate, and the OFT will be able to use additional powers that the Bill provides to investigate applicants and licensees.
There will be an appeal mechanism, through the appeal tribunal. That is why the guidance sets out clearly the steps to be taken and the time scale for notifications. That will ensure that legitimate businesses know what is expected of them in the relevant period.

Question put and agreed to.

Clause 35 ordered to stand part of the Bill.

Clauses 36 and 37 ordered to stand part of the Bill.

Clause 38 - Power of OFT to impose requirements on licensees

Charles Hendry: I beg to move amendment No. 16, in clause 38, page 31, line 32, leave out subsection (1) and insert—
‘(1)This section applies where the OFT has reasonable grounds for believing that a licensee or an associate or a former associate of a licensee—
(a)has engaged in conduct which breaches any provision of or under the 1974 Act;
(b)is engaging in such conduct; or
(c)is likely to engage in such conduct.’.
Improving regulation is, of course, a central aim of the Bill. Indeed, improved regulation is essential if we are to eliminate rogue lenders and unfair lending practices, which are the cause of financial difficulties for too many people. We need to recognise that the overwhelming majority of companies act responsibly and with consumers’ interests in mind. However, a minority do not, and those are the ones that we want to get rid of.
Expanding the powers of the OFT to deal with licensees is a major element of the way in which the Bill is intended to improve regulation. As I said on Second Reading, many hon. Members on both sides of the House have reservations about how much those increased powers will achieve the intended aim. Clause 38 is central to our concern.
The clause sets out the powers of the OFT to impose requirements on licensees where it is dissatisfied—the key word—with any conduct of business that is being carried out, or which it is proposed should be carried out, by
“a licensee, or associate or former associate of the licensee”.
It allows the OFT, by notice, to impose special conditions on licensees to deal with such unfit conduct. Those special conditions, such as training, will be specific to a particular licence holder to ensure that the business is meeting its fitness requirements. The breach  of a condition could lead to the OFT imposing a financial penalty on a licence holder or, ultimately, revoking, suspending or varying his licence.
In the right circumstances, the powers will be necessary and effective, but as with earlier problems, the clause is vague as drafted. The only guiding principle against which the OFT must consider imposing requirements is whether it is “dissatisfied” with a business or its conduct. That extremely vague description could cover absolutely anything. Indeed, there is no concept of objective justification whatever.
Dissatisfaction is not a term found elsewhere in law. By definition, anything less than full satisfaction involves some element of dissatisfaction. Dissatisfaction is certainly not the same as finding something unsatisfactory, but that is much closer to what we are considering and concerned about. It is not a term that distinguishes adequately between major and minor infringements, but surely it is essential that these actions are to be pursued properly and effectively.
Without greater objectivity, the clause could be dangerous and it leaves us open to the risk of excessive and unnecessary regulation, which will stifle the development of the credit industry and what it can offer the consumer. Indeed, the provisions give rise to serious concerns about their compatibility with human rights legislation. When considering identical provisions before the election, the Joint Committee on Human Rights wrote in its 15th report that it was concerned at the
“entirely unfettered scope of this power”
 and believed that the provision gave rise to
“a significant risk of incompatibility”.
Amendment No. 16 is designed to remedy that situation. It introduces the element of objective justification that is so necessary by introducing a test of “reasonable grounds for believing” that something has been done wrongly, and by linking matters that may give rise to the OFT exercising its powers to licensing issues, such as a breach of the 1974 Act, as amended by the Bill.
By increasing objectivity, we will have a better chance of achieving our aim of improving regulation and thus of achieving better protection for the consumer.

Gerry Sutcliffe: I always endeavour to satisfy the hon. Gentleman, but clearly I am not going to on this occasion. I should add that I am not a lawyer, but I know that I am in the company of many distinguished lawyers on both sides of the Committee, and I hope that we do not get dragged too far into a debate about definition, although I understand the weight that the hon. Gentleman gives to the issue.
The Government believe that the amendment would severely limit the effectiveness and flexibility of the OFT’s power to impose requirements on licensees by limiting the circumstances in which it could impose those requirements. That would reduce consumer protection, as the OFT’s ability to improve the conduct of licensed businesses would be curtailed.
We believe that the provisions are compatible with the European convention on human rights, and we have said so. Sufficient safeguards are already built into the Bill to stop the OFT abusing the powers in the clause. The OFT will publish guidance on how it will use these powers and, as I said, Committee members have notes on that guidance.
The OFT will have to let licensees know that it is minded to impose requirements, to explain why, and to give them the opportunity to make representations on the proposal. Appeals relating to other requirements can be made to the appeals tribunal, which provides a safeguard against the OFT exercising these powers unreasonably.
Given those guarantees, I hope that the hon. Gentleman will not seek to weaken the excellent consumer protection afforded by the Bill, and that he will withdraw the amendment.

Charles Hendry: As predicted, the Minister’s answer has not satisfied me, but we prefer to return to the matter on Report rather than pressing the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Clause 38 refers to the powers of the OFT to impose requirements on licensees. It enables the OFT to impose intermediate sanctions on licensees. Those sanctions are called requirements. Requirements are an important tool for the OFT to use to ensure an effective targeted licensing regime. The OFT’s powers are currently limited to refusing an application or granting a licence on different terms. It can also vary, revoke or suspend an existing licence.
The effect of those sanctions can be severe. They can, for example, prevent people from trading. The OFT adheres to the Cabinet Office enforcement concordat, and any regulatory action that it takes must be proportionate to the detriment caused. Therefore, it is able to act only in the most serious cases in which a person is simply not fit to hold a licence. In many cases, the OFT is powerless to address consumer detriment without withdrawing a licence, which would be a disproportionate response. For example, if there were problems within one branch of a national company, it would not be justifiable to revoke the whole of the company’s licence. A similar situation would occur if one employee were to intimidate customers when collecting debts. Such cases are not serious enough to call into question the fitness of a person to hold a licence, but the OFT should be able to protect consumers. That is why we have proposed this power to impose a requirement on licensees.
The clause requires the OFT to impose requirements on licensees if it is dissatisfied with a matter relating to the business. The requirement takes the form of a  notice requiring the licensee to do, not to do or to cease doing something. It must relate to the licensable business, it must address the matter about which the OFT is dissatisfied and it must ensure that the problem or a similar one does not arise again.
The OFT can use the power to address a wide range of problems. If the problem is with certain employees explaining credit agreements to customers, training for employees might be imposed. It might provide that sales representatives in a named branch be trained to inform consumers how they can cancel their agreements. If a debt collector’s employees are unfairly pressurising consumers by calling very late at night, the requirement could stipulate that they call only between 8 am and 8 pm. The requirement may also refer to a person other than the licensee. However, it will be addressed to and binding on the licensee. It can require a particular person to undertake a specific activity such as not collecting debts in person.
I should like to explain a few details to the Committee. The first is why subsection (1) refers to associates and former associates of a licensee as well as to licensees. That is because a person who is an associate of an unfit person might apply for a licence. For example, a second-hand car dealer might have been refused a licence. If his son then applied for a licence, the OFT might wish to impose a requirement restricting the father’s involvement in the provision of credit.
The second point is that the OFT may take steps to impose a requirement alongside the application process. That would allow a requirement to bite as soon as a licence was issued. It also explains why the clause refers to proposals to carry on a business as well as businesses already in existence. Requirements are a vital new tool for the OFT to ensure a targeted and proportionate licensing regime. I hope that, with that explanation, hon. Members will be able to support the clause.

Charles Hendry: I am grateful to the Minister for that detailed explanation. Earlier in our discussion, when we spoke about the Criminal Records Bureau, he said that he would return to the issue when we were talking about the powers of the OFT. I wonder whether this would be a suitable moment to do that. It seems to me that there is an issue in relation to who would need to be checked by the CRB. We are talking about people who will be dealing with vulnerable people. Therefore it would be appropriate at this stage to have a greater understanding of what the Minister has in mind.

Gerry Sutcliffe: For the reasons that the hon. Gentleman has mentioned, discussions need to involve all the relevant authorities. The OFT is currently in discussion with all relevant authorities about the issues—whether police checks or other associated matters.

Question put and agreed to.

Clause 38 ordered to stand part of the Bill.

Clause 39 - Power of OFT to impose requirements on supervisory bodies

Question put, That the clause stand part of the Bill.

Gerry Sutcliffe: Because this is a matter of concern to the Committee, I shall explain what the clause does. It concerns the power of the OFT to impose requirements on supervisory bodies, and it enables the OFT to impose intermediate sanctions on group licence holders. Such sanctions are known as requirements. The OFT issues group licences to a particular group of persons involved in a consumer credit-related activity when it is in the public interest to do that rather than issuing many standard licences. The public interest test is usually met when those covered by the group licence undertake licensable business peripherally to their main business. For example, solicitors are covered by the Law Society group licence, and voluntary organisations by the licence of the National Association of Citizens Advice Bureaux.
In such cases, the group licence holder has a supervisory role. In effect, the OFT delegates its responsibility for checking that those covered by the group licences comply with the Act. The OFT’s role is to check that the supervisory bodies do so properly. The Bill contains a power under clause 38 for the OFT to impose requirements on licensees, as we have discussed. This power gives the OFT tools to respond proportionately to problems with a licensable business. It can impose a requirement on the licensee to do, or not to do, something if it is dissatisfied. We are trying to be consistent to ensure that the group licences are covered by this clause.

Question put and agreed to.

Clause 39 ordered to stand part of the Bill.

Clause 40 - Supplementary provision relating to requirements

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: To assist the Committee, the clause sets out details relating to the OFT’s power to impose requirements on licensees, and supervisory bodies which hold a group licence. It provides that a notice imposing a requirement can specify when that requirement should be complied with. This may be a deadline, or a period during which it is in force. A requirement no longer applies when the licence it is related to expires.
Subsection (3) states that no compensation, or other redress, will be required. That is not the function of requirements, which are to ensure that a licence holder’s conduct is satisfactory to the OFT. Compensation, or making amends to individuals, should be pursued through the courts or the alternative dispute resolution mechanism.
Subsections (4) to (7) relate to powers to vary or revoke requirements. The OFT may vary or revoke a requirement on its own motion. Affected persons are also able to apply to the OFT to vary or revoke a requirement. These affected persons are the licensee, or any person who is referred to by name in the requirement. The clause ensures that the power for OFT to impose requirements is an effective tool.

James Brokenshire: Briefly, subsection (3) says that a person shall not be required under section 33A or 33B to compensate or otherwise make amends to another person. Could that provision be used to prevent a practice from taking place, for example, if there was an improper practice in place for a particular borrower? Could it be used to protect a borrower in those circumstances?

Gerry Sutcliffe: Yes, because that would be a matter of fitness and would concern unfair practice. We talked about default issues earlier on in the Bill. The borrower would not be able to collect anything because they had acted in an unfair way.

Question put and agreed to.

Clause 40 ordered to stand part of the Bill.

Clause 41 - Procedure in relation to requirements

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The clause relates to the OFT’s power to impose requirements on licensees, and supervisory bodies which hold a group licence. That power enables the OFT to respond proportionately to problems with a licensable business. When it is dissatisfied with certain matters, the OFT can impose a requirement on a licence holder to do something, to cease doing something, or not to do something in relation to that business.
The clause sets out the procedure for the OFT to impose requirements. It follows a similar pattern to other licensing decisions under the 1974 Act and it applies to both standard and group licences. If it is so minded, the OFT must issue a notice to the licensee to impose a requirement on him; to refuse to vary or revoke a requirement in the way that a person has requested; or to vary or revoke a requirement of its own motion.
That notice sets out the requirement the OFT intends to impose with the reasons why. The notice must also be issued to affected persons as defined in clause 40 of the Bill. Affected persons are the licensee, or the person who is referred to by name in the requirement who is prevented by the requirement from doing something connected with the licensee’s business.
Once a notice has been issued, the licensee or affected person has the right to make representations and to request an oral hearing under section 34 of the 1974 Act. If a person proposes a requirement to be imposed on himself, the notice procedure is not  necessary allowing for a shorter, more convenient process. That means that if the OFT and the licence holder agree on the terms of the requirement, the licensee can propose the requirement and it can be implemented immediately without the period for representations.
The clause ensures a fair procedure for imposing requirements. It complements the implementation of other licensing determinations under the 1974 Act.

James Brokenshire: I have another quick question. The Minister mentioned that the clause reflects other drafting in the 1974 Act relating to the appeals structure. I draw the Minister’s attention to clause 32, which refers to revocation. In many ways, this clause follows the procedure on revocation of a licence. In clause 32 it says that a revocation shall not take effect before the end of the appeal period. Clearly, that protection is not built in here, and a requirement could be set and enforced even before the appeal had taken place. Would the Minister explain why that timing period has not been allowed for in this provision, while it is allowed if there is an appeal under section 32 of the Act?

Gerry Sutcliffe: I do not know the answer to that. If the hon. Gentleman will forgive me, I will come back to him.

Question put and agreed to.

Clause 41 ordered to stand part of the Bill.

Clause 42 - Guidance on requirements

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Continuing to be consistent, we are talking about the OFT powers to impose requirements on licensees and statutory bodies that hold a group licence. The power enables the OFT to respond proportionately to problems with a licensable business. When it is dissatisfied with certain matters, the OFT can impose a requirement on a licence holder for the reasons that we explained earlier. That is useful when the problem is not sufficient to warrant refusing or revoking a licence.
The clause requires the OFT to publish guidance on how it proposes to exercise its powers to impose requirements. The OFT must have regard to that guidance when exercising its powers under the clause. The Committee has been provided with a note about the OFT’s guidance. That note provides an idea of the scope of the guidance based on the clauses in the Bill. Clearly, once the Bill is passed, the OFT will consult on the guidance, as stipulated in subsection (4).
The guidance will give examples of requirements and more details of the procedure that the OFT will go through. The OFT is able to revise the guidance if new  issues arise. The clause will help businesses and consumers to understand how the OFT will use its powers to impose requirements.

Charles Hendry: May I press the Minister for a little more clarification? In general, we support what is being suggested, but it seems that, in particular, the way in which the OFT will publicise the guidance is vague. Subsection (3) of the clause says:
“The guidance shall be published in such manner as the OFT thinks fit for the purpose of bringing it to the attention of those likely to be affected by it.”
Clearly one must be vague when setting such a measure out in primary legislation, because the way in which the guidance might be published will change over time. Does the Minister have an idea in his mind of how that will be appropriate? Will publication on the OFT website be sufficient? Will the OFT need to write individually to all licensees? Would it be enough to advertise in the newspapers? It would be useful to have a clear understanding of what the Minister has in mind.

Gerry Sutcliffe: The Minister has in mind that the OFT acts in concordance with its normal rules and procedures on how it deals with issues relating to discussion and consultation. The OFT is responsible to the Cabinet Office concordat that sets out how best practice on consultation and discussion should be administered. I am sure that the hon. Gentleman has read the details of that concordat backwards. It is reasonable to expect that the OFT will consult with all relevant stakeholders, which has been the way in which we have dealt with the issue previously on all matters relating to the Bill and to the White Paper.

James Brokenshire: I return to the point that I raised earlier. I rehearsed the argument there and I will say it formally again. The issue is the lack of checks and balances in the form of the approval of the Secretary of State of any guidance published under section 33E. There is also the consistency point that I made earlier looking forward to clause 54 of the Bill. In that case, a statement of policy would not be published without the consent of the Secretary of State. I hear what the Minister said on my earlier comments, but I ask that the issue be considered again in the context of clause 42.

Gerry Sutcliffe: I do not know whether this answer will be helpful to the hon. Gentleman. One of the reasons is that this clause relates to the conduct and normal, regulatory function, which describes what the OFT should do. The requirement for guidance is subject to consultation. That may assist him, or not.

Question put and agreed to.

Clause 42 ordered to stand part of the Bill.

Clause 43 - Consequential amendments relating to requirements

Gerry Sutcliffe: I beg to move amendment No. 23, in clause 43, page 34, line 39, leave out from beginning to ‘(particulars’ in line 5 on page 35 and insert ‘( )In section 35(1) of the 1974 Act’.
This is a technical amendment and I hope that the Committee will support it. It aims to avoid any confusion suggesting that people could be prosecuted twice for certain unlawful acts. Obviously that is not the intention. That is what the amendment makes clear.

Amendment agreed to.

Clause 43, as amended, ordered to stand part of the Bill.

Clause 44 - Provision of information etc. by applicants

Question put, That the clause stand part of the Bill.

Gerry Sutcliffe: The information provisions in the Bill give the OFT improved powers to obtain the information that it needs to assess and monitor fitness. The clause deals with the information that the OFT may require from licence applicants. The OFT will issue general notices to specify the information and documents that must accompany initial applications.
In the course of considering the application, it will also be able to request further relevant information from the applicants. The type of standard information required by it may change from time to time. For example, the OFT may decide that in future all applicants should submit evidence of their complaints procedure. It is possible that a change in the required information could happen while an application is being processed. If that is the case, the applicant would have to provide the extra information required by the OFT’s general notice.
I have covered the changes in the OFT’s information requirements. The next part of the clause deals with changes to the information provided by applicants. It is important that the OFT works on up-to-date information; for example, when assessing whether an applicant is fit to hold a licence. Therefore, if information submitted by an applicant changes between application and determination, they must inform the OFT within 28 days of the change occurring. If the applicant becomes aware of any errors in the information submitted, they must inform the OFT within 28 days of the error coming to light.
However, the Government do not want applicants to have to notify the OFT of every comma in the wrong place. That would be time consuming for the applicant and a waste of resources for the OFT. Therefore, an applicant is not required to notify the OFT of clerical errors or omissions that do not affect the substance of the document. Also, the applicant does not need to notify the OFT of anything they are required to give notification of for the public register under section 36 of the 1974 Act. Taken together, the provisions mean that the OFT will be able to assess applicants on the basis of up-to-date and comparable information.

Charles Hendry: My colleagues and I think that the provisions are sensible and we support them in general, but can the Minister clarify just one small aspect? What happens if a notification of a change or an error is not made within the 28 days as specified? What penalties can be imposed? Does the applicant have the right to appeal against a decision to impose a penalty or a fine in such circumstances? In general, we support the need for information to be up to date, but what would happen if somebody did not fulfil their obligations within the time scale? Does the OFT have any powers to shorten or lengthen the time if it felt that another time scale would be more appropriate?

Gerry Sutcliffe: I have tried to be very flexible about the arrangements for notification, but the information must be provided within the required time. Any delay may inform a decision on whether to grant a licence. There will be flexibility, but we have been very clear about the time scales. I appreciate the hon. Gentleman’s support for the clause.

Question put and agreed to.

Clause 44 ordered to stand part of the Bill.

Clause 45 ordered to stand part of the Bill.

Clause 46 - Power of OFT to require information generally

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The clause is key to ensuring that the OFT has sufficient powers to gather information so as better to monitor and enforce the licensing regime. The clause enables the OFT to require a person to provide specified information and documents at a specified time and place.
The OFT must give reasons for requiring the information and documents. It would be able to require such information or documents only if they were reasonably required for the exercise of the OFT’s functions under the legislation to undertake routine monitoring of licensees.
The OFT may also require information from third parties. To protect such third parties, the clause contains safeguards. The OFT can request information from non-licence holders only if certain acts or omissions have occurred, or if it believes that certain events have occurred. Such events must cast doubt on the fitness of a licensee, lead to a requirement being placed on the licensee or trigger a civil penalty. In the case of a group licence, the OFT must consider events that prompt questions as to whether the public interest is best served by the group licence remaining in place. Such requested information must also be  reasonably required by the OFT to help it carry out its duties under the Bill. The clause ensures that there are adequate procedural safeguards for third parties.

Charles Hendry: The way in which the OFT will interpret its regulatory role and carry out its powers in practice remains relatively vague in many areas, despite the additional guidance. For example, the OFT guidance states:
“From time to time the OFT may publish guidance on its interpretation of aspects of the Act and how it will enforce these. In some circumstances guidance is required by legislation...In other instances, OFT has the power to issue such guidance as it thinks appropriate. Guidance may be of a general nature...or it may relate to particular categories of activities or business.”
The extent to which and the circumstances by which the OFT will enforce its powers remains unclear. This is unhelpful both to the industry and to consumers and I should be grateful if the Minister clarified that. I should also be grateful if he talked further about the role of trading standards services because their duties will, to some extent, be carried out on behalf of the OFT. Does the Minister believe that trading standards services have the capacity to cope with their new work load? Will they be able to carry that out effectively and efficiently to fulfil the Bill’s commitment to improve the licensing and regulatory regime and to sift out unscrupulous lenders and those operating bad practice?
Can the Minister also clarify what additional resources will be made available to trading standards services? We need further assurances on that, despite his earlier comments. Does he accept that the delegation of responsibilities from the OFT to trading standards services will inevitably dilute accountability? That will run contrary to the Bill’s aim of improving transparency and will prove detrimental to consumers.

Gerry Sutcliffe: We shall come to the enforcement of the powers and the effect on trading standards services when we discuss clause 49, so it might be more appropriate to deal with that matter then.
Throughout our discussion, the hon. Gentleman has made the charge that the Bill is vague, but he will accept that under the parliamentary process the Bill sets out the framework and follows a White Paper that has been consulted on with all stakeholders. Discussion of the details takes place in relation to secondary legislation and guidance. That is necessary to enable people to understand fully the implications of the Bill.
That is how the details will be looked at. That will take place as soon as possible after the Bill receives Royal Assent. I accept that the hon. Gentleman feels that many aspects of the Bill are vague, but that is usually because of the parliamentary process that has stood us in good stead in much of the legislation that has been introduced. Secondary legislation covers the details and there is a great deal of negotiation before that secondary legislation is introduced. I hope that he  will accept that explanation and my assurance that we will discuss the issues involving trading standards services and so on when we come to clause 49.

Question put and agreed to.

Clause 46 ordered to stand part of the Bill.

Clause 47 - Power of OFT to require access to premises

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The clause gives the OFT powers to enter premises to obtain information and documents and enables it to carry out routine monitoring visits when enforcement officers will be able to observe business operations. It also enables the OFT to investigate more effectively suspected lapses of fitness. The OFT must first issue a notice requiring a licensee to ensure that an authorised officer can enter premises at a reasonable time. The clause does not apply to premises used only as dwellings.
The notice issued must set out the reasons why access is required. The authorised officer may observe the business or inspect any documents on the premises that have been specified or described in the notice and are present. An authorised officer may also require anyone on the premises who is involved in the licensee’s business to help them in their duties.
The OFT can access the premises only of standard licence holders and the original applicant for group licences and may do so if that is reasonably required to help it to carry out its duties under the legislation. There may be times when the OFT needs to access premises of third parties. In such cases, the OFT may require access to the premises of someone other than the licensee only if he thinks that an act or omission concerning fitness has occurred. Such an inspection must be reasonably required to enable the OFT to take or to consider taking licensing action. Again, that does not apply to premises used only as dwellings.
With that explanation, I hope that the Committee will support the clause.

Charles Hendry: The clause provides distinctive powers for the Office of Fair Trading. We agree in principle that it should have those powers, but I would be grateful if the Minister clarified a couple of points of detail.
New section 36C(4) states:
“The licensee shall secure that the required access is given at such times as the OFT reasonably requires.”
How does he define “reasonably”? For example, would it essentially mean working days and working hours or could it include weekends or the middle of the night? We need a clear definition.
New subsection (3)(b) states that it does
“not include premises which are used only as a dwelling.”
What happens if the premises are a dwelling? Do they come under clause 48, which gives powers to inspect premises under a warrant, or are dwellings more permanently excluded from such investigations? That would be rather surprising.
New subsection (8) states:
“A requirement may be imposed under subsection (1)...only if the observation or inspection in question is reasonably required for purposes connected with the OFT’s functions under this Act.”
Again, can he define “reasonably” for us? That would provide us with the greater clarity that we are seeking.

Gordon Banks: To reinforce what the hon. Gentleman has said, I sought a definition of “reasonably” and “reasonable”, particularly with reference to new new section 36C(5):
“The OFT shall give reasonable notice of”
times for inspection. What is considered reasonable and who is it considered reasonable by?

Gerry Sutcliffe: Sometimes notes are intended to be helpful, but not always. I am grateful for the acceptance of the hon. Member for Wealden that the clause is necessary to allow the OFT to carry out its functions in the way that we would all expect.
The reasonableness test applies to any other such licensing procedure, in the sense that it should be proportionate and reasonable. The OFT has to be effective in getting the required result and it has the discretion within the concordats that operate. Premises that are dwellings will come under clause 48, as the hon. Member for Wealden said—I now understand the nod that I was given. Dwellings fall under the warrant aspect of that clause, which we will discuss later. The OFT will be directed to maximise its opportunities to get the required results within the concordats.

Question put and agreed to.

Clause 47 ordered to stand part of the Bill.

Clause 48 - Entry to premises under warrant

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The clause covers the circumstances and procedures that allow an enforcement officer to enter premises under a warrant obtained by the OFT. In certain circumstances, the OFT can apply to a justice of the peace for a warrant to search premises; in Scotland, it can apply to the sheriff. It must have reasonable grounds to believe that information on those premises might be required under new section 36B and that, if a requirement to provide information were imposed, it would not be complied with or that the documents or information in question would be tampered with.
The officer responsible for carrying out the warrant would be able to enter and search the premises. They could seize and detain the information or documents of the description specified in the warrant and take steps to secure the protection of the information or  documents in question and prevent interference with them, including the use of reasonable force. The officer may be accompanied by any person he thinks necessary and take any equipment that he thinks necessary.

Question put and agreed to.

Clause 48 ordered to stand part of the Bill.

Clause 49 ordered to stand part of the Bill.

Clause 50 - Officers of enforcement authorities other than OFT

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: In response to the questions asked by the hon. Member for Wealden, I will outline the clause for the rest of the Committee.
New sections 36C and 36D inserted by clauses 47 and 48 will enable the OFT to ask offices of other enforcing authorities to carry out information gathering on its behalf. In practice, those other local enforcement authorities are likely to be local authority trading standards offices. They should be able to act as the OFT’s legs on the ground, carrying out routine monitoring visits and executing search warrants obtained by the OFT.
Under new section 36F inserted by this clause, anything done by an enforcement officer in the course of this activity will be treated as though it has been done by the OFT. That will not apply if the enforcement officer does anything that results in criminal proceedings. The OFT will enter into an arrangement with the trading standards authorities to carry out such activities. Trading standards officers must not disclose any information obtained as part of the such activity without the approval of the OFT, although that does not apply if the officer is under a duty to disclose the information.
In Northern Ireland, the Department of Enterprise, Trade and Investment carries out the function performed by trading standards officers in England, Scotland and Wales. The Bill will enable the OFT to work with the Northern Ireland body to carry out information-gathering activity in Northern Ireland. Trading standards officers have both the local knowledge and the proximity to carry out information and investigation work on behalf of the OFT, and they already have the expertise to take on the role. However, the OFT will also provide training and support. Working in partnership, the OFT and trading standards officers will be able to monitor licensees to ensure that they remain fit to hold consumer credit licences. The new powers will mean that the resource is used more effectively. The OFT will remain the primary enforcement body under the legislation and licensing decisions will still rest with it. That will improve standards and result in better protection for consumers.
Trading standards officers already enforce part of the 1974 Act, and they will work with the OFT to provide additional training. The OFT will fund trading standards activity under clause 50, and the OFT and trading standards staff will operate under appropriate agreements, so there will not be an on-cost to local trading standards authorities. We will debate later the role of trading standards in the wider context of the Hampton review. With that explanation, I hope that hon. Members will feel able to support the clause.

Charles Hendry: I am grateful to the Minister for that clarification. In the course of his comments, he said that it is likely to be trading standards officers who do the work. Does that mean that it will either be OFT officers or trading standards officers? Is there a third way?

Gerry Sutcliffe: There is always a third way.

Charles Hendry: The Minister says that there is always a third way. I thought that we had moved away from that concept.
Are there circumstances in which the work could be subcontracted out to other organisations? Could it be subcontracted to a private sector organisation? It would cause some anxiety if such work were done by people who were not regulated either by the Government or by local government.
Earlier, we spoke about the credentials that would be needed by those who provide credit. What credentials will the enforcement officers need, particularly if they are people who are outside the remit of the trading standards offices, and, once again, will they be people who will need to be checked by the Criminal Records Bureau?

Gerry Sutcliffe: I hope to help the hon. Gentleman. The work cannot and will not be subcontracted out. It will be done by officers of the OFT or of trading standards acting on its behalf, who will be trained to deal with the issues in a sensitive and reasonable  manner. The question of police checks does not arise, because the work will not be subcontracted to anybody else.

Question put and agreed to.

Clause 50 ordered to stand part of the Bill.

Clause 51 - Consequential amendments relating to information

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: This clause makes consequential amendments to the 1974 Act as a result of provisions relating to the provision of information to the Office of Fair Trading. Several information provisions in the Bill require applicants and licensees to notify the OFT if they become aware of errors or omissions in information provided. Applicants and licensees must also notify the OFT if certain documents change or are superseded. The clause inserts new section 7 to the 1974 Act to ensure that, if a licensee knowingly provides any information, not just with an application, that is false or misleading, he commits an offence. However, general clerical errors, which do not affect the applicant’s fitness, do not breach the requirements. The clause also states that the breach of a requirement imposed by clauses 38 and 39 and certain information provisions inserted by clauses 45 to 47 will not trigger OFT’s powers under section 162 of the 1974 Act.
Any power in the Act to require that information shall be produced also includes the power to take copies of the information. The clause gives the power to an enforcement officer to require an explanation of any information he requires. It makes clear that the information powers in the 1974 Act do not override legal professional privilege. Criminal liability under section 165 for giving false information or assistance to investigating officers will also not be triggered by breach of the new information requirement provisions. I commend the clause to the Committee.

Question put and agreed to.

Clause 51 ordered to stand part of the Bill.
Further consideration adjourned.—[Mr. Dhanda.]
Adjourned accordingly at twenty minutes past Twelve o’clock, till this day at half-past Four o’clock.